Final answer:
L1 Uncertainty occurs in situations where there is imperfect information affecting decision-making, often seen in labor markets where employers cannot fully ascertain a potential employee's qualities without observation.
Step-by-step explanation:
A company would face L1 Uncertainty in situations where there is imperfect information about critical factors that affect decision-making. This concept can be seen in labor and financial capital markets where employers, similar to used car buyers, may fear ending up with a 'lemon,' which in this case, would be hiring a poor quality employee. Despite collecting information about a candidate's academic and work history, some attributes like motivation, timeliness, and ability to work with others can be difficult to assess without on-the-job observation.
Employers often rely on signals from trade schools, colleges, awards, a high grade point average, and references to screen for these attributes. Imperfect information also impacts how equilibrium price and quantity are determined in these markets since the quality of goods and services, like the capabilities of potential employees, cannot be fully known prior to purchase or hiring.